I was at an event yesterday when someone compared authoritarianism with liberty. And this got me thinking about where crypto might stand in these opposing values, in the United Kingdom.

This evening I’d like to talk about what crypto is, what laws and regulations act as guardrails in this country and consider how it can be used and misused in the furtherance of liberty and authoritarianism respectively.

So first, what is crypto? Fortunately we have a definition which is set out in statute and this reads,

“”Cryptoasset means any cryptographically secured digital representation of value or contractual rights that – can be transferred, stored or traded electronically, and
that uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

We can see that this gives us a very broad definition, capturing a wide range of asset types which are based on an equally wide range of technologies.

The statue which gives us this definition, the Financial Services and Markets Act 2023 which received Royal Assent this June, is not the only piece of legislation which deals directly with crypto. We also have the Fifth Money Laundering Directive which sets out the requirement for registration of those who provide customers with the means of exchanging assets into, between and out of crypto as well as those who hold third party cryptoassets in safe custody. These, to me, are key areas which are correctly overseen by the FCA in this country.

Going back chronologically in terms of the steps of a transaction, the Financial Services and Markets Act 2023 provides protection on the marketing of crypto while earlier rules have long forbidden the marketing of crypto derivatives to retail clients. So we can see the guardrails of regulation and registration applying from the first point of contact, ie marketing, to the next steps of entry into the crypto markets by transacting on an FCA registered exchange and the safe holding of assets by an FCA registered custodian, where those service providers are in the UK. This is one of many reasons why I would urge you never to conduct any crypto transaction outside the United Kingdom.

These are not the only statutes which apply. Some types of crypto have for some time been within the regulatory ambit of the Financial Services and Markets Act 2000 and its secondary legislation, the Regulated Activities Order.

There is further legislation which supports the claim I often make that the crypto market in the United Kingdom is not the wild west.

This legislation applies in the wider areas of our lives. In terms of commercial activity we have the protections of the Consumer Rights Act 2015 which gives us rights of rejection, repair and replacement as well as the enforcement of terms. The Misrepresentation Act 1967 protects us from misrepresentations: fraudulent, negligent and even innocent misrepresentations.

In commercial and personal life we have the Theft Act 1968 which makes it an offence to obtain property by deception and the Fraud Act 2001 which combats selling under false pretences and obtaining a pecuniary advantage by deception or dishonesty.

Add to this the astounding strength of the common law system of this country, both crypto criminals and those who play fast and loose in commerce should be scared.

And this is followed through in the English Courts, which are at the forefront of defining crypto as property we can own and have been vocal about their firm intention that the United Kingdom will not be soft on illegal activities or breaches of contract when it comes to crypto assets.

Having considered whether our laws uphold our rights and protect us, I would like now to look at the concept of financial liberty and ponder whether crypto provides us with a viable system of finance.

The philosopher Michael Novak posited the idea that a financial instrument must fulfil three criteria to be workable. It must be capable of being a unit of account, a store of value and a medium of exchange. I would suggest that crypto can be all of these, and so is the starting point of a de-centralised form of finance which is parallel to the world of central banks and fiat currencies issued by a state.

A core tenant of de-centralisation is that no centralised authority can dictate or control how de-centralised assets operate. While we have boundaries set by legislation, regulation and common law, which I explored earlier, with de-centralisation we have a financial system which is controlled by state authorities only to the extent that for it to be legal it must meet the requirements of the relevant legal framework. Thus, crypto and de-centralised finance is more liberated from state control than traditional financial structures

So how can crypto be deployed as an aide or a means to liberty? The obvious examples of this are found in South America and sub-Saharan Africa where crypto, specifically Bitcoin which I consider a cryptoasset like no other, is used as a unit of account which can be exchanged and a store of value (I refer back to Michael Novak), all in contrast to and as a protection against high inflation, high interest rates, recession, the volatility of national currencies and the lack of local economic opportunity. Crypto is free from central bank monetary decisions, and can be an investment against the harm caused when central bank monetary decisions go wrong.

But the other side of this crypto coin is authoritarianism.

Central Bank Digital Currencies, known as CBDCs, can give their issuer the ability not only to see how we transact, but even to control how we transact, and so how we live our private lives.

It can be no surprise that the CBDC movement was spearheaded by China, which introduced its own in 2016.

And it is this control that people talk about when they discuss programmability. A CBDC with built in programmes can allow the issuer to see into and interfere in your private life. If the issuer is the central bank, this means that the state could decide whether or not you can use the CBDC which you own, or decide what you can use if for. Freedom of transaction, privacy of transaction and access to personal data are all threatened.

That this will happen has been disputed in the west. Fabio Panetta of the ECB executive board told the European Parliament’s Economic and Monetary Affairs Committee that the digital euro would never be programmable money, saying,

“Let me be clear: the digital euro would never be programmable money. The ECB would not set any limitations on where, when, or to whom people can pay with a digital euro …. When it comes to the central bank, we propose that we do not have access to personal data. And it will be for you [the Parliament], as co-legislators, to decide on the balance between privacy and other important public policy objectives like anti-money laundering.”

Forgive me if I note the inherent contradictions in these utterings. Forgive me also if I ask you to contrast this with a statement made by Christine Lagarde, the President of the ECB in an unprepared and unguarded moment. She contradicted the Signor Panetta’s guarantees and defended the idea of controlling even small transactions between citizens using the digital euro, saying:

“The digital euro is going to have a limited amount of control. There will be control … we are considering whether for very small amounts, you know anything that is around €300 or €400, we could have a mechanism where there is zero control, but that could be dangerous.”

Very small amounts? E300 or E400? Clearly I am being paid rather less Madame Lagarde as I don’t consider these amounts to be “very small” and neither, I suggest, would anyone on the average wage.

And then there is the question of whether the executive or legislative bodies of a western, liberal democracy would actually use these powers; whether there would be state overreach that stretches into our private lives, beliefs and transactions.

Yet in February 2022, only 20 months ago, this is exactly what Justin Trudeau did in Canada when he froze the bank accounts of not just the truckers who opposed mandatory vaccination and the idea that they state could deprive its citizens of bodily autonomy, but also those who supported the truckers’ cause.

But let’s end on a positive note. I am by nature an optimist and I believe that here in the United Kingdom we have the legal architecture to be able to build a strong and safe crypto financial system that can work alongside that of centralised finance.

We can be a world-beating global hub for the crypto industry and build the economy, life and societies which liberty allows.

While I am the first to warn against over-regulation and cripplingly restrictive legislation, we do (perhaps) live in a democracy which, in general, has laws to preserve and protect our liberties in the crypto asset arena.